Motilal Oswal has lowered its target price for Astral Ltd. to ₹1,710, reflecting a 15% correction in share price from March highs. The company is preparing to separate its plumbing and chemical businesses into independent entities over the next nine to twelve months. While the brokerage maintains a positive view, future valuation will depend on the growth of the new paint division and the execution of this restructuring.
What Happened
Brokerage firm Motilal Oswal has adjusted its outlook for Astral Ltd., reducing the target price to ₹1,710 per share. This revision comes after the stock experienced a roughly 15% decline from its highs in March. Despite the lower target, the brokerage has kept its positive rating on the company. The adjustment is largely a reflection of the current market valuation, with the stock trading at approximately 45 times its estimated earnings for the fiscal year 2028.
The Business Split Strategy
Astral’s board has officially approved a restructuring plan to demerge its plumbing and chemical businesses into separate, independent companies. The management expects this process to take between nine and twelve months to complete. The primary goal of this move is to allow each business unit to focus on its specific market segment. With the major capital spending cycle nearing its end, management believes this split will allow both entities to pursue growth opportunities with more efficiency.
Financial Targets and Growth
For the period between fiscal year 2021 and 2026, the company recorded an average annual growth rate of 16% in revenue, 11% in operating profit, and 7% in net profit. Looking ahead, Motilal Oswal projects a stronger growth trajectory for the 2026-2028 period. The brokerage estimates a 16% annual growth in revenue, a 20% rise in operating profit, and a 25% increase in net profit.
By fiscal year 2028, the brokerage firm estimates that the return on equity, which measures how effectively the company uses shareholder money to generate profit, could reach 17%. The return on capital employed, a metric for how well the company uses its total capital, is projected at 24%.
The Paint and Adhesive Challenge
While the demerger is a major strategic focus, the brokerage notes that the company’s success will heavily depend on its performance in the adhesive and paint segments. The paint industry in India is highly competitive, dominated by large, established players. Astral’s ability to gain market share in this new category, alongside the performance of its domestic and international adhesive businesses, will be a key factor in determining its long-term valuation.
What Investors Should Monitor
Investors may want to track the execution timeline of the demerger, as complex restructurings can sometimes face delays or unexpected costs. Additionally, the operational performance of the new paint division remains a significant monitorable. Since the company has completed its major expansion phase, the market will likely focus on whether the company can maintain its profit margins and improve cash flow generation in the coming quarters.